Topic 4 of 6 · Form 4
Government and the macroeconomy
Economic growth, full employment, stable prices (low inflation), balance of payments stability, redistribution of income, and environmental protection – with possible conflicts.
Notes for this topic 1 file, in order
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Government's role and objectives
Economic growth, full employment, stable prices (low inflation), balance of payments stability, redistribution of income, and environmental protection – with possible conflicts.
Fiscal policy
Government spending and taxation; budget deficits and surpluses; principles of taxation; direct and indirect, progressive, proportional and regressive taxes.
Monetary policy
Changes in interest rates, money supply and exchange rates by the central bank.
Supply-side policy
Education and training, privatisation, deregulation, labour market reforms, subsidies and tax incentives.
Economic growth
Measured by real GDP; causes (more resources, better technology, productivity); recessions; benefits and costs of growth.
Employment and unemployment
Measuring unemployment; types (frictional, structural, cyclical); causes, consequences and policies.
Inflation and deflation
Measured by the consumer prices index (CPI); demand-pull and cost-push causes; consequences; policies.
Worked example: A price index rises from 120 to 126. Find the inflation rate.
(126 − 120) ÷ 120 × 100 = 5%
Check yourself
- Give one difference between a progressive and a regressive tax.
- Which type of unemployment results from a decline in an industry?
- How might raising interest rates reduce inflation?
Show answers
- A progressive tax takes a larger percentage from higher incomes; a regressive tax takes a larger percentage from lower incomes.
- Structural unemployment.
- Borrowing becomes more expensive and saving more attractive, reducing spending and demand-pull pressure.
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